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The Nikkei India Manufacturing Purchasing Managers’ Index for July was at its lowest in the past eight years and demand took a deep dive owing to GST adjustments. By the deadline of August 25, over 36 lakh businesses had filed their GST returns. The overall impact is indicated to be an upswing of 16.6 per cent on a comprehensive level, though some states would need compensation and others may have a beneficial gain. The disruption of demand has hurt the industry and is not likely to be compensated by the same quantum of the drop.

Demand needs momentum.
The interest relaxation of 25 bps was too meagre, given the low levels of inflation currently. Public spending will need to be kept up to hold the economic growth numbers. Even though Tata Steel and JSW have begun to plan their expansion, none will invest yet. They may be keener in making a pick from the stressed companies sounding their death knells at the altars of the NCLT.

The August 29 mayhem in Mumbai was a repeat of the havoc in 2005. Little has changed in 12 years. Although social media updated everyone earlier on what was to follow and office-goers left offices earlier, as the tracks were flooded, trains stopped, electricity cut off and the Bandra-Worli Sea Link closed, traffic was left in a complete jam.

The usual areas prone to water-logging caused several people to abandon their vehicles and walk home in the filth.

The High Court has banned new construction in Mumbai and an appeal to reverse this in May 2017 was thrown out by the courts. When I raised this issue with the BMC Commissioner at a conference, he had dismissed the suggestion, saying, ‘Stopping construction is not the answer.’ Then, Mr Ajoy Mehta, what is the answer? Is August 29 your answer?

Simply put, enhancing the infrastructure capacity of the city is the answer. So what is the capacity required for a city of our population in terms of storm-water drainage, solid waste management, power, water supply, and so on? Why can’t we have the BMC targeting these numbers for the creation of capacity? These should be linked to TDR charges and capacity creation should lead permissions. In our quest to win better ‘ease of doing business’ rankings, the number of permissions have been brought down – it would now take 60 days instead of over 200 in Mumbai and Delhi to get construction permits. But permissions should be given only after enough capacity is created. Why has the BMC not been able to provide even a dumping ground for construction debris, the original reason for the ban on construction? If construction is allowed to continue without the authorities providing for increase in capacity, we will soon be seeking the ‘right to breathe’ instead of ‘right to privacy’.

Nagpur has been in the news ever since the political capital shifted under the current regime. All roads now lead to this ‘orange’ city which has always been a ‘capital in waiting’. The 710-km road that recently invited controversy was the Rs 46,000-crore Mumbai-Nagpur Expressway, which revised its invitation for bids with a supplementary advertisement and caused much heartburn, as the riders imposed were allegedly introduced to outfox fair competition. The project, which is expected to be completed in two years, envisages 16 packages of construction. High-speed corridors have proven to bring prosperity within the corridor zone and this can pave the way for some political capital, as 24 new nodes will be developed in phases projected to generate employment for 25,000 people each across logistic, industrial, IT, agro-industry, tourism, education, healthcare, auto, warehousing and food processing, besides from social infrastructure development including hotels, malls, petrol pumps, offices, hospitals and educational institutes.

Thirty more smart cities have been added to the existing 60, taking the tally to 90 cities that have been selected under the Centre’s Smart Cities mission, taking the total budgeted spend to over $31 billion. Of the ones selected, 26 have proposed affordable housing projects, 26 cities will be taking up school and hospital projects, and 29 will be taking up redesign and redevelopment of roads to enable walking and cycling. Development is likely to score higher in smaller cities as the impact of infrastructure projects is more visible and has a life-changing impact. This underscores the importance of the recently launched Energy Conservation Building Code 2017 (ECBC 2017) developed by the Ministry of Power and Bureau of Energy Efficiency (BEE). ECBC 2017 mandates a 25 per cent saving in energy for compliance. However, we recommend that the ECBC rating must devolve, unless renewed annually for effective compliance.

Led by its dynamic municipal commissioner Kunal Kumar, Pune Municipal Corporation (PMC) has created history by raising Rs 200 crore for its Rs 2,800-crore water supply project via bonds. The bonds have been listed on the stock exchanges. PMC plans to raise Rs 2,264 crore over the next five years and plans to repay the debt by enhancing its revenues through water charges.

The remarkable aspect of this issue was the appetite as the issue elicited oversubscription to the extent of Rs 1,200 crore. This sets the stage for a new stream of funds for municipalities while ushering in an era of transparency.

The worst news for India’s economy has been the loan waivers the state governments have conceded to, all at the altar of political capital. On the other hand, the GST juggernaut is ready to roll. Now, it’s time to brace for impact.

The balance between social good and infrastructural development is a delicate one. A citizen has a constitutional right to be provided basic amenities but the nation has limited resources, further constrained by a poor administrative system of collection of revenues, making it necessary to depend upon private investment. Private investment has to serve the profit motive, which in turn conflicts with the ´right to be served´ of the citizen.

The recent judgement by Allahabad High Court has split this wound wide open. It denied Noida Toll Bridge Company, which has been awarded the contract of collecting toll from passengers for 30 years, the right to continue collecting toll as it claimed that the concessionaire has earned reasonable profits. Even the Supreme Court has not entertained the plea of the defendant. It has noted that ´the Concessionaire, according to their own financial statements, has recovered Rs 810.18 crore from toll income from the date of commencement of the project till March 31, 2014, and after deduction of operation and maintenance expenses and corporate income tax, the surplus was Rs 578.80 crore (computed before interest, depreciation, and lease rental received by the Concessionaire)´.

Many issues need to be addressed here. Are contracts that provide service to citizens but allow the company providing the service to make profits, void? If power companies, airport operators and port operators can make 16 per cent return or more, why not toll concessionaires? Will this not have a retrograde effect as was the case with retrospective tax, which drove foreign investors away? How will the government, then, fund such projects?

Only funds with a long payout date that are ultra conservative will invest in these projects, provided the government provides sovereign guarantees. Noida Toll Bridge Company is a public-listed entity and its business plan comprised the returns from this project alone. By withdrawing the company´s right to earn tolls, the courts have made the government renege on its commitment and kill shareholder value, apart from scaring away potential investors in such projects. The risk quotient has spiked and shareholder value in such projects has eroded. Moreover, this will set a trend as local leaders with political ambitions will join protests to derail user charges and win the favour of voters.

Meanwhile, GMR has won an arbitration order of $270 million against the Maldives government, which had arbitrarily cancelled GMR´s contract to run its airport. The compensation covers the debt and equity invested in the project along with a return of 17 per cent, as well as termination payments and legal costs.

It´s true what they say – you win some and you lose some! On October 21, 2016, though, we had a room full of winners. This issue brings to life the magical evening that recognised India´s Fastest Growing Construction Companies and Top Challengers. The jury is playing a more responsible role than ever before as it serves as a moral guardian for the integrity of the awards process through its acumen and judgement. Raghav Chandra, Chairman, National Highway Authority of India, hit the nail on the head when he said, ´Construction is an intimate affair.´ His sentiment was echoed by Dilip Suryavanshi, along with Devendra Jain of Dilip Buildcon – while accepting the award for the fastest growing construction company in the large category, he said, ´When my competitor sleeps, I am at work, and the top management needs to be intricately involved in the management of men, materials and machines to deliver a sterling performance.´

We are happy to have been able to bring this evening to your homes by webcasting it live; in case you missed it, you can watch it at bit.ly/CWAA16. Meanwhile, enjoy some of the highlights in this issue. Here´s wishing all our readers a happy and prosperous new samvat year!

There is finally good news on the economic front.
Projects commissioned in the country reached a record high of Rs 4.6 lakh crore in FY2016, according to CMIE. This is the highest-ever commissioning of projects in a year and represents a 12 per cent increase over Rs 4 lakh crore in FY2015. The stock of projects on hand is also huge – total outstanding projects are worth Rs 159 lakh crore. Of these, Rs 92 lakh crore worth of projects are estimated to be under implementation.

FDI increased by 27.5 per cent to $42 billion during April-February FY2016 as against $32.96 billion during the corresponding period of the previous year. Indirect tax collections moved up by 31.1 per cent to Rs 7.11 lakh crore in FY2016 over FY2015, indicating an improvement in demand. Transmission companies are recording a 20-25 per cent surge in their order books. And, initiatives like UDAY and DISCOM reforms are firing the power sector.

Among other patches that have started to see green shoots are the solar sector, railways and coal production. Commercial vehicle (CV) sales, which were languishing till a few quarters ago, have veered into positive territory, especially in the medium and heavy segment. In FY2015-16, the overall CV industry did well to post 11.51 per cent year-on-year growth with sales of 685,704.

Even consumption of products used for construction or industrial purposes are indicating an uptick: Bitumen (up by 16.9 per cent), petroleum coke (up by 42.9 per cent) and furnace oil (up by 39.4 per cent). Further indicators include sales of medium and heavy commercial vehicles (up 29.9 per cent in 2015-16), cement production (13.5 per cent increase year-on-year in February) and electricity generation (9.2 per cent growth in February).

Government spending has contributed to this spurt. In 2015-16, a total of 6,029 km of national highways were built, which was not just an all-time high but a substantial jump over the 4,340 km, 3,950 km and 5,732 km that were constructed in the preceding three fiscal years. In the past three to four months of 2016, construction equipment too has been witnessing growth over the previous corresponding years. The green shoots are evidently here. And, with the prospect of a good monsoon after two bad years, the time seems set for an overall improvement in the economic scenario in the construction and infrastructure space. Real estate will still take time as the buoyancy in the economy will take some time to percolate.

A revival in PPP also indicates an improvement in the confidence of the business sector. For India’s infrastructure building plans, a huge contribution has been envisaged from the private sector. A total of about 1,200 projects in different segments of the infrastructure sector, with investments worth about Rs 7 lakh crore, are being carried out under PPP mode throughout India, according to an ASSOCHAM study. Of these, there are about 650 projects worth over Rs 4.5 lakh crore with about 67 per cent share in roads and bridges; followed by over 100 projects in the ports sector (12 per cent) with an investment worth over Rs 80,700 crore; over 150 projects in energy (6 per cent) with investments worth over Rs 41,000 crore; investments worth over Rs 30,000 crore in SEZ (5 per cent); as well as projects in water sanitation (2.6 per cent), and others. Almost 73 per cent of total investments worth over Rs 3.3 lakh crore (rest are either terminated or information is not available on them) attracted by the infrastructure sector in various segments under construction in the PPP mode are concentrated in roads and bridges. Currently, there are about 480 investment projects under construction in the PPP mode in various other segments: SEZ, ports, energy, water sanitation, airports, tourism, healthcare, cold chain and others.

The stage is set for a revival and, with the indulgence of the rain gods, the clouds on the horizon are signalling good tidings – at last!

According to a World Bank report titled Dealing with Construction Permits, India is languishing at the 183rd position in this parameter, rubbing shoulders with the likes of Afghanistan (185). But, finally, the government has attacked this in right earnest. March has been a watershed month of sorts in the history of construction in India. The Budget announcement on allowing 100-per-cent deduction for profits to projects building homes up to 30 sq m in the four metros and 60 sq m in other cities is likely to spur supply of affordable homes. This was followed by the passing of the Real-Estate Regulatory Act (RERA), which has created a robust structure for protecting homebuyers. And recently, the Model Building Bye Laws 2016 were proposed – these provide a structural framework for a single-window, integrated, building plan approval process and set the maximum time limit for all kind of building approvals at 30 days, after which the approval can be considered ´deemed´. All these measures have come at a time when the sector is reeling under debt stress and low demand but they form firm pillars for the sector to stand upon during better times. The next wave of the economic boom can be well sustained for a longer duration with systems in place that provide checks and balances.

Our cities are in definite need for resuscitation. As per a 21-city survey conducted by Janaagraha, our cities continue to score poorly in comparison with the likes of London and New York.

The lowest-ranked city among all is surprisingly Chandigarh, having the dubious distinction of coming last among 21 for the second time in a row. Further, our cities are grossly underprepared to deliver a high quality of life that is sustainable in the long term.

This is particularly worrisome given the rapid pace of urbanisation in India and the huge backlog in public service delivery. Cities face governance challenges on multiple levels. Most fail to disclose audited accounts. They have no evaluation mechanism for the plans implemented by the municipal corporations. They have extremely weak finances and no city among the 21 reviewed has an effective system in place to monitor and prevent violations or mechanisms to undertake punitive or corrective action. City leaders don´t really have the power to formulate a long-term vision or the length of tenure to execute the same. How is it possible for Bengaluru and Jaipur to become smart cities unless they provide some stability to their commissioners? Both cities have had six commissioners in five years while Raipur has had eight! The Swachh Bharat mission has also ranked the ´cleanest cities´ in India where Mysore, Chandigarh and Tiruchirapalli have secured the top three honours. Now, the smart cities challenge launched by the Ministry of Urban Development has set a race among cities and their leaders, including chief ministers, in urban renewal. Although there is a long way to go, this is now being taken up on a war footing.

So far all deadlines for the smart cities mission have been maintained and the programme appears to be moving forward to prepare India to rebuild its growth engines: Its cities. Read this issue´s cover story for a ringside view of the plans for the cities of tomorrow…..

We are not out of the woods yet. Eight core sectors – coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity – slowed to 1.1 per cent in July after a growth of 3 per cent in June, mainly on account of low expansion in coal output and contraction in steel, crude oil and natural gas production, all hinting at weakness in industrial recovery. AM Naik, chairman of engineering and construction conglomerate L&T, expressed his anguish publicly, and maintained that any recovery was at least a year away.

While Naik may be right, the roads sector has definitely rebounded, to about 13 km a day from just 3 km when the NDA took over, as per the ministry´s website. The government plans to sanction 20,000 km of projects in the coming three years and the target for the year to March 2016 has been set at 8,000 km. Seven top road builders have raised Rs 10,700 crore by way of bonds, paving the way for finance to the debt-stressed sector. Bonds come at a cost of 11 per cent and can be serviced, provided tolls commence within the timeline. Recent easing of policies, including allowing companies to exit projects and getting environmental clearances in time, have helped improve the climate.

Raising finance overseas has been the route many companies like ITNL have followed. The global scenario, though, is not too smooth with Caterpillar planning to cut up to 10,000 jobs by 2018 and JCB cutting 400 jobs in the UK. The Chinese residential property market, which contributes tremendously to the GDP, continues to remain under pressure. In the Middle East, too, the pressure on oil prices has rubbed off on public-sector spending, with the award of new construction projects having slowed down.

In the light of this global upheaval, India remains an attractive option. During Prime Minister Modi´s visit to the US, American CEOs implored him to step up the pace of reforms. Once he´s back, he will jump into the Bihar elections, but will have to sharpen his ability on seeing through bills of reform. For instance, the plan to build 50 non-frill regional airports has been revived. The logic to accelerate connection of the hinterland is unquestionable. However, roads take their own time and larger investment; a quicker way would be to deploy air taxis on economically run airports. Creation of these ´air corridors´ can accelerate economic growth.

Similarly Union Minister for Roads, Highways and Shipping Nitin Gadkari has been a strong proponent of the use of inland waterways and a bill is in the works. There is a proposal to offer 850 ports along major rivers to transport coal to the private sector. This will create new opportunities in logistics and is likely to bring in Rs 4,000 crore of private investments apart from saving sizeable freight costs. The smart cities mission, in which nearly two dozen countries are showing interest, also has great potential to revive the urban construction scenario. However, all this will require good footwork on the floor of Parliament.

Meanwhile, a flock of nimble-footed construction companies are emerging, who are moving stealthily and strengthening their order-books. Many of them are small and new. These and others who have retained their conservative approach are in the reckoning to grab the business as it is likely to unfold. Our 13th Construction World Annual Awards will celebrate these winners on October 16, in Mumbai. So while the third quarter gets underway along with the hopes of a better festive season, we will raise a toast to the fighters who managed to score on a rough turf.

The problem with solutions is that solutions need to be measured for effectiveness of resolution. When solutions are taken as gospel answers, problems do not disappear. They remain and lurk in the shadows. Green ratings are similar solutions that seem like gospel answers to the energy guzzle by high rises.´What can´t be measured can´t be managed´-´this favourite boardroom credo needs an extension:´…and once measured needs to be reviewed´. While a lot of time is spent thinking up solutions and phrasing them into laws and acts, the least time is spent on their implementation. Execution requires the administration of reviews, penalties, awards and incentives. Transparency in execution can help us solve the problem completely but this is where most resolutions falter and fail. On green ratings, a periodical review with a transparent process could invigorate the mission of energy efficiency in buildings.

There is an informal assessment of the performance of the Modi Government already in motion. Many from the anti-Modi camp have already begun raising their voices about the lack of´feel-good´ translating into better bottom lines. Although Modi supporters are holding up with the´it-requires-time-to-resuscitate-a-sick-economy´ line, they too are beginning to look for answers. Despite the bonanza on the oil front (where the oil import bill has shrunk as the price per barrel has fallen from $ 110 to around $ 60 and as India imports over 70 per cent of its oil consumption, India´s annual CAD could improve by up to $ 50 billion from a $ 50 fall), our Government is staring at a potential revenue shortfall of over Rs 1 lakh crore this fiscal year and some expenditure reduction may be undertaken to stick to the fiscal deficit target of 4.1 per cent of GDP.

In the roads sector that sets the construction sector on an accelerated drive, the contracts awarded are struggling to reach the 5,500-km target. The UPA government had awarded just 3,169 km in 2013-14 against 2,300-km-odd in 2012-13. In fact, the average time overrun had increased from about 20 months in 2008-09 to about 50 months in 2013-14. Yet, construction per year ranged in the region of 14 km per day from 2009 to 2013. However, the lag in awards in the past two to three years has cast a long shadow on a pickup in activity. Hence the importance of expediting awards to reflect construction of at least 20 km per day as against Road Minister Nitin Gadkari´s target of 30 km per day. Despite low awards, projects are seeing better clearance timelines. Of the 16 projects awarded in 2013-14, work has already begun on 12, or 75 per cent, so far, an improvement from the previous two years. This, and the savings on land and environment clearances that account for up to Rs 200 crore per project, can help better ROI.

Although the Union Budget 2015-16 is scheduled to be a historic one given the macroeconomic fundamentals, I believe it will involve more financial jugglery than report an economic recovery. It may be high on vision and aspiration but low on results of any radical transformation. There is no denying the clarity & honesty of intention as the government has launched all its promises under ordinances. But business needs visible and tangible proof of an economic recovery apart from the efforts being made to improve efficiency of administrative processes. Further, given the precarious finances, the Government needs to demonstrate a credible plan to fund the various schemes announced. Any demonstrative proof could enliven the order pipelines. Here´s wishing all of you a constructive new year!

Surprisingly, ever since Anil Swarup became head of the Projects Monitoring Group (PMG) under the Cabinet Committee of Investment, he has not gotten the attention he deserved. When we invited him to speak on the progress made by the PMG at an ´INFRASTRUCTURE TODAY´ conference, he was the first one to walk into the conference hall, dot on time. And when I complimented him on his punctuality, he clarified that he felt it was unfair to the people who came on time to hear him if he did not maintain his time commitment. His clarity of thought, his delivery, witty comments and remarks were quite unusual for a bureaucrat. But then Swarup is a passionate man. His drive ensured that the health scheme he was responsible for, prior to his appointment at the PMG, was a resounding success. On November 21, as he took the podium after receiving the award for ´Construction World Man of the Year 2014´, he lauded the efforts of ASAPP Media and the manner in which it conducted its events and presented its magazines. As most awardees before him were construction leaders and had commented on whether ´achhe din´ had come or were imminent, he asserted that it was a matter of one´s own state of mind to decide to make things happen or wait for them to happen. Interestingly, he got a near unanimous vote for Man of the Year from our jury. What´s more, he held the audience spellbound by the magic of his delivery at the event. Graciously presenting the awards to construction leaders, he affirmed that they represented the true spirit of enterprise that India is banking on.

Just as Anil Swarup acted as a catalyst and broke the infra project logjam, our FM needs to appoint a point-man to help catalyse non-performing assets in the construction sector. During the dinner conversation at the event, one awardee narrated that a few years ago, when Uday Kotak visited Hyderabad, he had remarked that Hyderabad was the infrastructure capital of India. ´Now, it is the CDR capital of India,´ he remarked sardonically. Indeed, debt-ridden companies are furiously flailing their arms and legs to stay afloat. Most companies got into project development buoyed by the infrastructure boom, but the delay in projects, issues related to land acquisitions, lack of fuel for power and environment clearances among others have bled the companies dry. A huge infusion of capital is needed just to reach a stage of sustainability.

HCC is using the Lavasa IPO to bring debt into control; Gammon India plans to sell 58.67 per cent of its holdings in Gammon Infrastructure; Jaiprakash is selling its power and cement plants and has raised nearly Rs 15,000 crore from the sale of assets until March and Rs 1,500 crore via qualified institutional placements; GMR Group sold 40 per cent stake in Istanbul´s international airport and another firm providing airline services for $305 million and Welspun sold its stake in a construction JV for $99 million. More than $10 billion worth of assets have already been sold and another $5-7 billion are in the pipeline as per CLSA brokerage research.

The FM recently urged bankers to ´take calls´ without fear on extending credit. I think he needs to extend ´easier´ terms for easing corporate debt burden by redefining NPA guidelines. Infrastructure by its very definition has a longer gestation period and debt extended to such a sector must be addressed with easier guidelines, especially as our debt market does not offer long-term credit instruments defeating the basic tenet and creating a mismatch right from the inception of the debt. The power sector is staring at a huge debt hole for both power companies and banks. A committee should analyse all such beleaguered companies within a timeline and offer assistance to all genuine cases by offering relief and extensions.